McDonald's Corp. will introduce the first new line of hamburgers since 2001 across the U.S. starting tomorrow to broaden its menu beyond the value meals and $1 fries that have attracted customers in the recession.
The three new Angus burgers are one-third of a pound each and priced at about $4, Dan Coudreaut, executive chef for the Oak Brook, Illinois-based company, said in a telephone interview. The burgers will be available nationwide for several months, said Marta Fearon, director of marketing.
McDonald's more expensive burgers will have to overcome the slowdown in U.S. consumer spending as people eat at home more often, said Tom Forte, an analyst with Telsey Advisory Group in New York. Meals that combine sandwiches, fries and a drink, as well as $1 menu items, have helped drive McDonald's monthly sales growth.
"Given the recession, it's harder to sell a premium item," said Forte, who has a $67 to $69 price target on the stock. "It's important that they have a menu that offers both premium and value."
McDonald's, the world's largest restaurant company, rose 73 cents to $58.22 at 4 p.m. in New York Stock Exchange composite trading. The shares have lost 6.4 percent this year.
California Burgers
The company began developing the Angus burger about two years ago after franchisees in Southern California asked for a premium offering to compete with regional burger chains, Coudreaut said. The company has been adding chicken sandwiches as poultry gained popularity with diners, as well as less expensive items such as the McDouble.
The franchisees "thought there was a gap at the top end of the menu," Coudreaut said in the June 26 interview. "We realized we needed to consider this as a category."
The burgers may pull sales away from McDonald's core menu of Big Macs and Quarter Pounders, said Darren Tristano, an executive vice president at Technomic Inc., a Chicago-based restaurant consulting firm.
"The Angus is going to upsell someone who would have bought a Big Mac or Quarter Pounder," Tristano said. "It's less likely to attract new customers than cannibalize existing ones."
The new burgers are made with beef from Angus cows, compared with the U.S. Department of Agriculture certified beef used in Big Macs and Quarter Pounders. Those sandwiches cost about $3 each, although prices vary by region.
The new offerings didn't hurt core menu sales during two years of tests at 500 restaurants in Los Angeles, New York, Columbus, Ohio, and Albuquerque, New Mexico, Coudreaut said. The burgers drew interest from some new and infrequent customers as well as existing patrons, Fearon said.
Competing Offerings
The new burgers feature a braided sesame seed bun, a thicker tomato slice and red onion, Coudreaut said. One of the burgers is topped with hickory-smoked bacon. The Big N' Tasty was the last burger McDonald's introduced, in 2001.
In California, the Angus burgers will compete with offerings from regional chains. Carl's Jr., owned by Carpinteria-based CKE Restaurants Inc., sells the Original Six Dollar Burger, styled after the larger sandwiches made at table- service eateries. In-N-Out Burger, based in Irvine, and Fatburger Corp. in Santa Monica, also offer bigger burgers.
Burger King Holdings Inc., the second-largest burger seller in the U.S., is upgrading the broilers in its restaurants to make premium beef sandwiches later this year. Wendy's/Arby's Group Inc. also is testing a new signature burger.
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